Connectedness Between Natural Gas Price and BRICS Exchange Rates: Evidence from Time and Frequency Domains

Yijin He,Shigeyuki Hamori,Tadahiro Nakajima

doi:10.3390/en12203970

Yijin He, Shigeyuki Hamori + Show 1 more

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https://doi.org/10.3390/en12203970

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Journal: Energies	Publication Date: Oct 18, 2019
Citations: 10	License type: CC BY 4.0

Affiliation: Kobe University, Kansai Electric Power (Japan)

Abstract

In this paper, we investigate the connectedness between natural gas and BRICS (Brazil, Russia, India, China, and South Africa)’s exchange rate in terms of time and frequency. This empirical work is based on the approach of connectedness proposed by Diebold and Yilmaz, who provided an effective way of valuing how much variation in one variable is responsible for the value of other variables, and the method proposed by Baruník and Křehlík, who decomposed the results from Diebold and Yilmaz into different frequencies. We also use the rolling-window method to conduct time-varying analysis. The data used in this paper are from 23 August 2010 to 20 June 2019. We find that the natural gas price hardly influences BRICS’s exchange rates, which provides an important practical implication for policymakers, especially in oil-dependent countries.

Highlights

In light of the increasing attention being paid to environmental sustainability, energy systems are gradually transitioning from a dependence on non-renewable resources to the use of environment-friendly resources
The first method is provided by Diebold and Yilmaz (DY) [4,5,6], whose approach calculates the connectedness between different objects by introducing variance decomposition into vector autoregression (VAR) models
The DY framework describes the connectedness as “when shocks are arising in one variable, how would other variables be changing?”, whereas the Baruník and Křehlík (BK) framework estimates the connectedness in short, medium, and long-term financial cycles

Summary

Introduction

In light of the increasing attention being paid to environmental sustainability, energy systems are gradually transitioning from a dependence on non-renewable resources to the use of environment-friendly resources. This will have a great impact on day-to-day life, economies, businesses, manufacturers, and governments. Compared to coal or petroleum, natural gas has many qualities that makes it burn more efficiently. It generates fewer emissions of most types of air pollutants, including carbon dioxide. With the continuing rapid expansion in liquefied natural gas (LNG), the inter-regional natural gas trade grew by 4.3%, which was more than double the

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